March 2021


The past month was marked by some key policy initiatives that are expected to bring some respite to the distressed discoms.

With a view to improving the liquidity of power discoms, which have been impacted by the Covid pandemic, the MoP notified the Electricity (Late Payment Surcharge) Rules, 2021, reducing the interest rate on late payments by discoms. As per the latest data from the PRAAPTI portal, the discom overdue amount has reached over Rs 1.06 trillion, as of January 2021. The new rules have reduced the LPS rate from the existing 18 per cent to a graded payment linked to the bank rate. This was one of the measures announced last year to help discoms deal with the fallout of the Covid pandemic, which significantly impacted their revenues. Besides the reduction in LPS, the government announced a liquidity package with loans worth Rs 1.35 trillion. Of this, Rs 463.1 billion has been sanctioned till date.

In another key announcement, the MoP has notified guidelines that allow discoms to either continue or exit from a PPA with a central generating station once the tenor of the PPA expires. Further, the guidelines give generators the flexibility to sell power in any mode after the state/discom exits the PPA. The move is expected to give greater flexibility to states to manage their power procurement options and relieve discoms of the onerous financial liability of fixed cost charges that they would otherwise pay for old plant PPAs.

Meanwhile, taking forward the new Rs 3.1 trillion reforms-based power sector scheme was announced in this year’s union budget, the power ministry has recently circulated draft guidelines to the states for their comments and suggestions before finalising the guidelines and sending them to the cabinet for approval.

Notably, instead of adopting a one-size-fits-all approach, the new scheme will have a more tailored approach. It will provide flexibility to states and discoms to undertake measures that meet their specific needs and requirements. Like its previous scheme, UDAY, the centre will give grants to discoms to address their viability concerns, provided they improve their financial and operational performance. However, this time around, the scheme will have a caveat that if the discoms fail to carry out the desired action, the grants disbursed will be converted into loans. Further, the new scheme aims to bring down discoms’ financial losses to zero. The scheme will also earmark investments for smart metering, with a focus on energy accounting, and feeder and transformer metering.

Overall, the scheme does seem to hold immense promise for the distribution segment and its details are keenly awaited by all industry stakeholders.


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